Under Siege Credit Card Companies Target New Sources of Revenue

May 19, 2009

(ChattahBox)—As the Senate wraps up its debate on the Credit Card Accountability, Responsibility, and Disclosure Act and the powerful banking lobby exerts as much influence as it can, the final version of the bill is starting to take shape, and it will differ significantly from the House version in several important respects.

Still, the banking industry is not happy and is already putting on a media blitz, evidenced in a New York Times article today, pitting credit card holders with sterling credit against the less credit worthy, claiming that people with good credit will be paying for the deadbeats, because now the banks will be forced to return to charging hefty monthly fees and pulling back good credit rewards and other perks of the trade.

Some provisions in the original House bill were removed and other provisions were added in the Senate version, with a final vote expected on Tuesday. Once the Senate version passes, the two versions may then be sent to a conference committee for reconciliation.

The Banking Committee headed by Democratic Senator Dodd and Republican Senator Richard Shelby is leading the way on the compromises between the House and Senate bills.

The so-called Credit Cardholders’ Bill of Rights is shaping up to ultimately provide consumers with greater disclosure on interest rate hikes and providing general oversight on the bank’s previously predatory and oftentimes deceptive practices, burying onerous credit terms in the fine print.

The new rules will require the banks to provide a 45-day notice on rate changes and can’t raise rates in the first instance unless the cardholder is 60 days late on payments. The new rules will also tighten up issuing credit cards to teenagers, raising the age limits and requiring parental consent.

The House version of the bill only required a cardholder to be 30 days behind before an interest rate hike. Additionally, the Senate version is tacking on a measure for cardholders to redeem themselves, by requiring companies to bring interest rates back down if a cardholder makes timely payments for six months after being 60 days late.

The provisions removed from the original House bill, include a prohibition on the credit card companies practice of “universal default,” where companies can sock cardholders with a much higher universal default interest rate if they are late on payments to unrelated bills, even though they are in good standing with the credit card companies.

Additionally, the House Bill called for a limit on the number of over-the-limit fees, which was removed in the Senate version. There is no cap on interest rates in the Senate bill, requiring instead that rate hikes be “reasonable and proportional.”

While the final parameters of the new credit rules come into focus, the credit card companies are already eyeing ways to earn revenue on what’s left to them, leaving some consumer advocates to wonder if the credit card companies are hijacking any reform before it even becomes enacted into law.

With former predatory practices now soon to be a thing of the past, credit card companies are about to cobble together a new business model, which involves raising fees on the front end and back end. Doing away with free credit for good customers and perks like cash-back rewards and frequent-flier miles. Banks are also considering charging interest rates immediately on a purchase, doing away with grace periods.

In recent years, banks have made a bundle on late fees and penalty charges, estimated at $20 billion this year and that is not about to change, but will only increase as banks look to recoup revenue from losses they claim will result from credit card reform.

Consumers can expect fees, fees and more fees, but at least now consumers will be informed and have a better sense of the real cost of carrying those credit cards in their wallets.

Austan Goolsbee, economic adviser to President Obama likens the banks current predatory practices as sneakily carjacking consumers with hidden rates and fees and that’s about to change.

The credit card companies will be forced to provide consumers with a more equal playing field, which in theory will do away with deceptive business practices, but not all consumers should expect to save money.

However, as the banks now have a whole year before the new laws take effect, consumers can expect additional fees and other changes.

President Obama expects to sign the new Credit Card Accountability, Responsibility and Disclosure Act into law on Memorial Day.

Source


Comments

12 Responses to “Under Siege Credit Card Companies Target New Sources of Revenue”

  1. Old Man Dotes on May 19th, 2009 12:05 pm

    My solution is simple: Except for my mortgage, and a Home Depot card that I *always* pay off before the interest actually starts, I don’t use credit. Period. My next car will be paid for in cash – money that I have saved by not paying interest on credit cards.

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